TONY JONES: Let's start with the story that's dominating the news from your hometown. If the Melbourne Storm was a financial corporation we would be asking about regulation and ethics but what does this scandal tell us about the win-at-all-costs mentality that allows a team to cheat?

LINDSAY TANNER: Well, it's a very sad thing for Melbourne and obviously for the game but I can't draw any conclusions about all of this, Tony, because we don't know the facts as yet and the League has acted, I think, very strongly and I think my only view on this, really, is that the salary caps and draft systems are very, very important for the health of competitions like this to ensure that there's evenness, every club gets a chance, nobody gets stuck down the bottom forever.

And so that's why it is really important these rules are strictly enforced so for anybody who's out there saying "Well, hang on a second, it's only just a bit of accounting fiddling", these rules are fundamental to the strength of the game and so, without prejudging any of the facts, I think strict enforcement of those salary cap rules is important.

TONY JONES: From your Government, two broken promises announced the same day as the Storm scandal has swept all before it. What do you say to the cynics who think this is no coincidence?

LINDSAY TANNER: There's always going to be cynics no matter what you do here, Tony. We've got a situation on the insulation front where we've had independent expert advice which basically says the risks that are involved in the program are risks that certainly in the immediate future can't be adequately managed and it would be irresponsible for us to do anything other than not proceed and, of course, we've still got very substantial work that's likely the flow for the reputable companies in the sector in remediating some of the problems that emerged in the initial program.

So we didn't have any realistic option other than to accept that advice and yes, it will cause us some difficulty politically but I don't think we had an alternative.

On the childcare front, the promise to build over 200 new childcare centres was made almost five years ago and at a time when there were serious supply problems in the sector. There were many areas in Australia where there simply was inadequate supply.

What's happened is, the market realities have changed quite substantially and what we would now be doing if we kept going with this program is literally to be putting businesses and community centres out of business, so the problem that the promise was designed to solve is no longer there and we are putting substantial amounts of additional money into childcare in other ways so I think, again, it's the responsible thing to do.

Yes, we'll cop some flak about it but I think to proceed with the original commitment when the circumstances have changed so much just simply wouldn't be right.

TONY JONES: Is there going to be further compensation to those small business who've have borrowed hundreds of thousands of dollars in many cases thinking this scheme would go on? They have bought the pink batts, they're ready to go and the scheme has stopped.

LINDSAY TANNER: Tony we already have a very substantial program in place to assist businesses and that's going to be ongoing and I...

TONY JONES: Is it going to get bigger?

LINDSAY TANNER: Well, not that I'm aware of but obviously we'll be examining all of the consequences of where things are heading.

One of the issues here that complicates this question of course is that some of the businesses that have been involved have, frankly, been dodgy and we don't want to be in the position of rewarding people who have actually been doing the wrong thing here.

And the businesses that haven't - those that are legitimate businesses - they are going to get substantial opportunities for further work to be engaged in the remediation work that flows from the problems in the initial program.

TONY JONES: Astonishingly... That is an incredibly embarrassing scenario to end up with - supplying work... It's like make-work scheme, really, isn't it? I mean, you have a scheme that worked so badly that you have to employ people to repair it.

LINDSAY TANNER: Well, it's only for a small proportion of the overall number of homes but nonetheless, because of the risks that are involved it is something that we just have to do and you still will have a broad outcome at the end of this program -not quite as big as was originally envisaged, but nonetheless the proportion of Australian homes that are insulated and therefore are more energy efficient is going to be much, much larger than it was when the program was first put in place.

TONY JONES: On the positive side today, from your point of view, the International Monetary Fund has revised Australia's growth figures up dramatically, suggesting that growth in the country, GDP growth, is going to be more than 3 per cent.

Now one senior economist has told us that means the projected deficit of say $57 billion is now going to be more like $40 billion or a little over that. That takes an awful lot of pressure, if that's true, off the budget bottom line doesn't it?

LINDSAY TANNER: There has been a lot of exaggeration I think in public commentary about this, Tony.

There's substantial time lags involved in the recovery of revenue flows when you do get a recovery after such a dramatic event and such a big loss of revenue that we experienced over the late '08 and through much of '09 period, so I think that there's been some people who frankly are off with the pixies on these issues.

TONY JONES: Well, off with the pixies - we're talking about chief economist at CommSec Craig James here. Now, if the bottom line does end up tens of billions of dollars better, that means you don't have to have a tough budget, particularly.

LINDSAY TANNER: Well, no it doesn't because we've set in place rules that prevent us from simply using any improvement in revenue as a way of avoiding the tough decisions because we have got to get the budget back in surplus as quickly as possible and pay down the debt that has flowed from the global financial crisis as quickly as possible.

Now, I'm not necessarily suggesting any commentary by Craig James or any other person in particular is off with the pixies.

I'm not even sure exactly what he said but I am saying to you that there has been quite a lot of ill informed commentary about this - even suggesting that we might be back in surplus next year, for example.

Now, the time lags that are involved in taxation flows will make that basically impossible to achieve.

Certainly impossible on the basis of changes in revenue flows, so some of the projections people are putting forward are simply unrealistic.

There's a prospect that we- that the numbers may improve from where they were at the end of last year, we acknowledge that. But the IMF's projections for growth, all they are, of course, is growth at or slightly above the long run average, so it is a great relief if that's where growth is going to be compared with what we have been over the past 18 months to 2 years, but nonetheless it's not something that's massively out of the ordinary.

The key thing that's unusual is that we are well ahead of the rest of the developed world, which of course is still in a very fragile state.

TONY JONES: We expect the release of the Henry tax review next week. Now, you've tied one hand behind Ken Henry's back by telling him he can't touch the GST. What else has been ruled out?

LINDSAY TANNER: We haven't ruled any other thing out of consideration. We have given Ken Henry and the committee that he's been part of a very wide remit to examine all of the aspects of the Australian taxation system.

That doesn't mean we will accept or reject any particular recommendation. We will consider all these things on their merits. We have done a lot of work looking at the possibilities.

The report will be released very soon and people will judge us according to how we have responded.

We've ruled out changes to the GST, either increasing the GST or changing its scope, but other than that and the change in the superannuation arrangements that was previously in place, we have a smorgasbord of possibilities that we're going to have to consider here and people will respond to our decisions - and what we decide not to do and what we decide to do in different ways, so this is very important...

TONY JONES: Well, indeed. Let me take one aspect of taxation which has been talked about many times, including by one of your former leaders, Mark Latham, at one point when he was shadow Treasurer - that's negative gearing arrangements.

Now, every time the prospect of changing negative gearing comes up it is automatically ruled out. Are you saying this time it's not ruled out?

LINDSAY TANNER: No, I'm not saying anything of the kind, Tony. All I'm pointing out is that in the remit we gave the Henry committee, other than the things we have mentioned, everything else was open for them to express a view on.

That doesn't mean that a view that they expressed to us will therefore automatically become Government policy or be implemented because all those things are interconnected so it is very simple and easy to pull one particular issue out and say "Rule this out" or "Do this" or "Do that" but all of these things are interconnected.

The key reason why governments of both persuasions have not interfered with negative gearing is of course that that any dramatic change in the overall investment framework could lead to a stampede of people out of property, which could lead therefore to dramatic drops in prices which of course you're seeing in other economies around the world and you see the economic devastation that flows from that, so there's a lots of issues involved here.

We didn't rule out in advance consideration of property taxation generally along with other forms of taxation generally in the Henry committee and its deliberations, but nobody should assume that that therefore means that, were they to recommend something of that kind that we would do it.

TONY JONES: One of the hottest tips is a resource rent tax, which is another way for the Government to dip into the rivers of revenue from the mining boom - the rivers of gold, as they are sometimes called. Now that would have to come under consideration wouldn't it?

LINDSAY TANNER: It is of course a proposition that's different from the traditional taxation method, which is a flat royalty on the resource which of course applies irrespective of whether the mining company makes any money or not.

That's one of the issues that has been publically canvassed and widely debated. We'll wait to see what the report recommends and how the Government responds but I can't pre-empt those considerations, of course.

Inevitably people will have different views depending on how it affects them...

TONY JONES: The Western Australian Premier, for example, has a strong view. He believes this is something you're going to do and he calls it a tax on Western Australia and a tax on mining and he's going to oppose it.

Now, can I just ask you this - is this one of the reasons why he's so reluctant to sign up to the Government's health deal, because he fears that there are other nasties coming down the track in the Henry tax review?

LINDSAY TANNER: Look, I don't believe so, Tony. I don't think there's any connection between his position on the health negotiations and any debate about possible changes to royalty regimes and taxation regimes for minerals.

Others may have better information than I have because of course I'm neither Western Australia nor a Liberal so I'm not exactly a close advisor or confident of Colin Barnett but as far as I'm aware there is no connection between these issues.

He's of course got one particular issue that's worrying him, I think and that is that the recent Commonwealth Grants Commission restructure of GST revenue distribution left Western Australia worse off than they previously had been, quite significantly.

I think it is only for a year or two that's particularly the case but nonetheless, I think there's a particular issue there which has exercised the minds of the Western Australian Government and that was influencing their view of this GST carve-up question.

TONY JONES: Okay, Lindsay Tanner, many other questions about how you can afford to pay for the Health plan overall into the future...

LINDSAY TANNER: We'll get there.

TONY JONES: ..with budgets strictures but we can't really go through that tonight. We've run out of time. We thank you very much for joining us.